Strategic Options for Electric Car Manufacturers: A Report

This report analyzes the electric car industry, focusing on the impact of hybrid and electric cars on the global automobile market. It begins by applying Porter's Five Forces model to assess the competitive landscape, examining the bargaining power of buyers and suppliers, the threat of new entrants and substitutes, and the intensity of competitive rivalry. The analysis highlights the challenges and opportunities presented by the shift towards electric vehicles, including the influence of government regulations and consumer preferences. Furthermore, the report identifies strategic options for premium automobile manufacturers like Mercedes and BMW to maintain their competitive positions. These options include cost-controlling strategies, such as negotiating favorable terms with suppliers, and organic growth strategies, which emphasize product quality and efficient resource utilization. The report concludes by emphasizing the importance of adapting to the evolving market dynamics and making strategic decisions to ensure long-term success in the electric vehicle sector. The report is contributed by a student to be published on the website Desklib, a platform which provides all the necessary AI based study tools for students.

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Case - Electric Car dream collides with reality on profits
Student Name: Nazal Noushad
Heriot-Watt ID: H00232576
Course Lecturer: Dr Ross Curran
Title of Course and
Code: Strategic Management – C19BU
Tutorial Number: T9
Word Count: 1568
The deadline date for
submission of
coursework:
Date: 25-02-2018 Deadline: 4:00 pm

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Using Porter’s five forces, broadly discuss how hybrid and electric car
production will affect the World’s automobile industry?
Hybrid and Electric cars are becoming progressively popular due to the increasing price for
gasoline and the move to save Various researchers have depicted that hybrid and electric cars
have grasped rapid emphasis in today’s world. This is because of all the environmental
problems that are changing the trends in the market. The information provided by financial
times on this issue informs us that the conditions of the market in the current world of
automobile industry and opinions of premium brand manufacturers on hybrid and electric
cars. The article “Electric car dream collides with reality on profits” published on September
2017 states that, electric and hybrid cars has an ease in demand by the current buyers.
Through this article, it is understood that there has been a ban put by the govt. restricting the
use of resources that are naturally available and used as fuel for cars. This has been taken up
as an initiative by the govt. around the world to make all the vehicles fully electrical so that
the pollution level in the environment will be under control. Majority of the premium
automobile companies are supporting this initiative. The expected profit margin from such
sale is comparatively low in the current situation. Although, its predictable that the profit
margin will increase with the entrants of better communication for infrastructure and other
innovative technology as input supply.
Porters five forces model has been used in this case to understand and identify the impact of
electric and hybrid cars in the industry of automobiles around the world.
Bargaining power of buyers:
In every industry, the consumers play a vital role in deciding the trends and buyer behavior in
the market. The bargaining power of the buyers is crucial for the industry and its
development. In the automobile industry, electric cars are produced only based on the highly
moderate demand of customers. In this sector the customers are differently classified, and
their focus is on the car engine, battery life, interior comfort and mileage of the vehicle. Due
to the rise in environmental issues in the world, consumers have more demand for eco-
friendly cars which are electric and hybrid cars. While comparing these types of cars with a
normal car, the cost of switching to an eco-friendly car is more feasible and low, therefore the
power of buyers plays a limited role in automobile manufacturing.

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Bargaining power of suppliers:
Suppliers have an important role in the market as they provide the necessities that are
required for production in an industry (Donada ,2013). This factor elaborates on the
bargaining power of the suppliers that determine the progress in the industry. In the
automotive industry, the supplier power is very high because there are only a few
distinguished battery suppliers for electric and hybrid cars. Due to this, the demand for a
supplier is high as there is an increasing change in innovation over a period of time (Morden,
2016). As there is a rise in demand, the bargaining power of the suppliers will also be high in
the industry. The suppliers who provide various automobile parts like battery, charging
network, electric power train are highly relied upon by the car manufacturers.
Threat of new entrants:
In every industry, there is a threat of new entry over the years as for the opportunities that are
available to them. This affects the trends in the industry and market. New entrants in the
market can lead to a major change in the industry and the competitiveness among brands or
companies (Morden, 2016). For hybrid and electric cars, the batteries required to run them
involve high cost and risks which is unattractive to the market. Due to the time taken to
charge the batteries and the heavy infrastructure required for the automobile, many
companies have not considered production under this category. Another factor that reduces
the threat of new entrants in this market are the low profit margin in the industry. Although
over a span of time, the automobile manufacturers will implement the availability of
advanced methods of production and assembling. There is a significant chance of rise in the
production of hybrid and electric cars as the market is in demand of eco-friendly cars. This
will lead to decline in demand for traditional cars in the coming years.
Threat of substitutes:
A substitute product is always found as an alternative to the original product that satisfy the
same need or want of a consumer. For example, the need for television can be replaced with a
laptop or mobile phone that has internet connection. In the automobile industry, this factor
will be moderate. Eco-friendly cars can substitute the diesel and petrol cars, which will
increase the demand for hybrid and electric cars in the future. There will be an increase in

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competition among the hybrid and electric car which can result in decline in sales (The Auto
Industry Can’t Ignore The Electric Vehicle Revolution Any Longer, 2018). Therefore, there
is a high threat of substitute that will be faced by the car manufacturers who produce both
traditional and conventional models. Hybrid and electric cars can out do the quality, safety
and comfort features that are available in the traditional cars, thus increasing the demand for
eco-friendly cars and decreasing demand for traditional ones.
Competitive Rivalry:
Competition has always been a crucial factor that effects business trends in all the industries.
This aspect shows that the effect of competition exists between the competing companies in
the actual market. While considering the automobile industry, the competitive rivalry is
substantially high among premium brand manufacturers for electric car production.
However, due to the high degree of complexities in the process production and the high cost
in the making and usage of such cars. it has not yet got a hold of a good position within the
automobile industry. As an increase in the advancement of technology and facility takes
place, the competition within the industry will simultaneously increase and more
manufactures will take up the hybrid and electric car production. The increase in supply will
decrease the cost hence making such car models affordable to the public
What strategic options should premium automobile manufacturers like
Mercedes and BMW adopt to defend their competitive stance according to
your assessment of how hybrid and electric cars will affect the industry’s
competitive conditions?
The above-mentioned analysis depicts that even though there is a tough competition between
automobile companies, being a part of the production and sale process of electric and hybrid
cars will be reasonably less in the starting stage of the business. As time passes by, the
competition and rivalry keep strengthening simultaneously. This is the main reason as to why
premiere branded firms like BMW and Mercedes will have to take up strategies to make sure
they can withstand the competitions that are yet to arise in the industry. The two most
important strategic options that can be adapted by the premiere brands could be cost
controlling strategy and organic growth strategy.

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Cost controlling strategy:
Companies take up cost controlling strategy to get a hold back in their market position by
retaining sustainable financial positing their structure of capital. When it comes to the case of
electrification of cars, it has been quite observed that the companies in the automobile
industry invest a large amount of fund in the product developing process. However, if the
company can successfully lower the amount incurring in the initial investment stage, they can
increase their volume in production to compete with the wider competition happening in the
industry level. In order for the positioning of cost controlling strategies, the company can take
up ideas such as creating a contract with the suppliers for providing input materials.
Therefore, the suppliers of the company can perform as their internal organization partner and
provide needed inputs at a very reasonable cost. The ultimate result will be reduction in the
cost of company’s production process.
Organic growth strategy:
An organic growth strategy may help the company in the dealing of high competition
happening in the market by amplifying the usage of the resources of the company, optimum
utilization of energy to get the best output from the product development process and giving
more importance to the quality of the product they produce to satisfy their buyers. This will
in turn aim to help the firms to become strong enough to compete in the market and with the
better quality of product to be able to provide more value to their customers and help
maintain customer’s attention. Implementation of an organic growth strategy will help
premiere brand of the automobile industry to increase their share of the market as well as
sustain customer retention by focusing more on the development of the product and concerns
of its quality. Other than this, organic growth strategy will also help in assisting automobile
firms to allocate and use their resources and capital efficiently. This also helps to reduce
wastage as well as the extra costs incurred for the input needed for the products. The
advantaged of greater efficiency is that it helps strengthen relationships with potential and
existing buyers. Some organic growth strategies are also interlinked with mergers and
acquisition strategies, which may be able to help firms to merge or acquire with related firms
for better products and thus increasing sales.

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